I Just Made Soup
Those few of you — largely bots, I’m guessing — who graze this page probably wonder if this blog is dead. It’s not, but perhaps it will be in a little while. Given that my dominant philosophy of investing is predicated on the idea that pontificating about markets isn’t really that useful for investment or trading success (witness the numerous very smart commentators who also seem to make poor investors or traders), I haven’t really felt the need for a long time to write here.
I may have started this site in the hope that I’d become another must-read blogger; initially I got a fair amount of traffic from places like Seeking Alpha and Yahoo Finance, but unless one sustains the torrent of words and commentary required to attract interest, things quickly go fallow. And frankly, to a point the finance and economics worlds are not of interest to me — but who cares what I find interesting? There are so many deep economic wonk commentators and obsessive finance types currently writing, both better, more informed, deeply analytical to the extreme. So why add to that? For what use? Has any of it really ensured that investors avoid losses? Perhaps sometimes, but for the most part, doubtful. In my opinion, there’s an enormous mass of hot air out there, and whether it’s for social reasons or otherwise, it feels kind of silly to contribute to it.
So I daresay there won’t be a whole lot of writing here, but not due to laxity. It’s just my philosophy.
Breathe and stop
Interesting question on Ask Metafilter about a retail investor who tarried in the markets during the “flash crash” of May 6th with a buy market order who put it in when the market price was 0.01 and which executed at 63; he ended up holding a $630,000 position that thankfully he profited from… or did he? The fact that he didn’t even think about using a limit order brings home the fact to me that a lot of people who invest really have very little knowledge of what they’re doing. I include pretty much everyone in that description, however — there’s nothing worse than someone who thinks they really get it and that others don’t. That’s when hubris meets nemesis.
An idea I just had but don’t really have the interest to implement is a website that collects anecdotes from that day; I’ve already seen mentions of the money made and the money lost (often when a huge buy order was made at a super-cheap price, and the position sold, only to have the initial buy trade busted and a massive, unprofitable short position in its place). Mine would be small fries: I had a position in Procter & Gamble, a safety stock, that declined precipitously — I was, in retrospect, unlucky enough to be watching the markets at that exact moment and sold it at breakeven, only to watch it climb back just as fast. Perhaps another lesson in watching the markets just enough but not too much.
When nobody’s looking
A terrific excerpt from Michael Lewis’ upcoming new book, on the causes and personalities behind the subprime crisis. Definitely one of my favourite authors. I’m always fascinated by how he manages to find the perfect people to illustrate his stories, and invoke the range of their foibles so easily.
Dr. Michael Burry’s story seems kind of amazing, especially in light of its relatively spectacular ending. A not-especially-happy doctor gets a share of a malpractice settlement and some additional family money, starts valuestocks.net around 1997 — a website that gains major attention around over the next few years among the burgeoning financial website cottage industry — and eventually ends up being a billion dollar hedge fund manager (ca. Jan. 2008). In the retroactive view that seems to have invaded anything that came before the term “blog”, this guy was an O.G. financial blogger; kind of funny to see so many now trying to follow in his footsteps. Is there anyone out there that’s nearly as incisive as this guy sounds like he was at the time? (Unfortunately it’s not in the Internet Archive so there’s little to find but indirect references to the content.) I can’t imagine any hedge fund out there pulling picks off stocktwits or pretty much any investing blog out there, these days. If anything, it seems like the maturation of the online investing media has turned it into a mostly useless pit of misinformation and you’d be hard pressed to find someone with a transparent, successful portfolio like he’s described as having on his old website.
(More backstory here. I’m curious to know how he’s doing now, in 2010, but there doesn’t seem to be a lot of info after the one from early 2008.)
I don’t know but I’ve been told
Felix Salmon, who has turned out to be one of the more interesting and savvy financial bloggers out there to me, comments on the underperformance of ETFs. As someone who’s almost always taken an active role in my finances and investing, I’ve rarely invested in ETFs and when I have tried to employ them in some specific scenarios, they’ve performed poorly — for instance, they really do suck as a way to invest in commodities, in my opinion. It seems to me that the financial advisory industry as a whole spends a great deal of time creating instruments and building an investor culture that tries to act as if investing (or trading) can be simplified to a set of easy-to-follow rules and, hey, we’re professionals, so leave your money with us. I think it’s made even easier for them to convince people because the majority of people want to be convinced. They’re not that interested in thinking about how to invest their money — not really — so they do their best to wipe their hands of it, with all the consequences that entails.
It’s not really something I think you could ever fix by creating new investing products. It’s really a systematic issue, where the majority of people should not be investing, but that implies we need to develop a more robust public pension and assistance option (well, depending on your political views), and even that depends on funding a small pool of investment managers, where you again run into these large-scale fund issues and underperformance. Maybe there really is no financial utopia, and just by dint of the way our civilization works now, we will always run into these kinds of problems on a mass scale. Then again, even at the subsistence level, it’s never really been purely egalitarian either.
I feel that this is a set of disjointed thoughts, but it’s early so I’m giving myself some leeway.
What could have been but never was
Oftentimes, comparisons are made between trading and gambling — the variance, the risk/bankroll management, the lack of complete information. Whether you’d classify trading as a gambling is almost a philosophical question, in my opinion, and one that doesn’t really have a definitive answer. Starting a business is a gamble, too.
In any case, one thing that differentiates them in my mind is the level of regret. As a gambler, it’s rare that you can ever feel like you missed out on some big win if you aren’t playing; maybe some superstitious slots player might claim that someone stole their jackpot if they happened to be watching their favourite one-armed bandit pay out to a stranger, but for the most part it’s impossible to know what could have been. With markets and trading, you have up-to-the-minute information that you got out too early, that you should have stayed in, that you took a small profit instead of a large one. In my opinion, it’s regret that causes a lot of issues with traders — the revenge trade or jumping back in at inopportune times as the steady accumulation that isn’t accruing to you continues like water torture. As they say in poker, that’s one of my leaks. This kind of artificial hindsight is in some ways the bane of anyone who dared look at a chart to use price as a proxy for value, and a cousin to Keno players and those who back-test their theories; if one were, like Warren Buffett, able to price something based on something outside the vacillations of the market, this kind of regret wouldn’t exist.
Still, I’ll take the regret that comes with the small profit over the large loss, any day of the week.
More ah, less bla
I think to clarify what I was saying in the last entry, which sounded a bit disjointed — I was probably still half-asleep — I find the use of statistics in investing and trading reportage or blogging somewhat useless, especially when I see people discussing their numbers for this year, and I think they have a pseudo-marketing effect that I find disingenuous. There was an article in a Globe and Mail continuing series of investor profiles that highlighed a family achieving 600% returns with “play money” (I think it was under 10K) and another from a woman with 300% returns on her 5K TFSA, a woman who said that she had never invested before in her life but was now the subject of a newspaper profile. There’s rarely any context given — like the somewhat historic investing environment we’re in — or any mention of the fact that perhaps this kind of investing strategy might not easily scale (along with liquidity factors, psychological effects become a major deterrent with larger amounts of capital, something rarely addressed in newspaper investing reportage). It’s this kind of reporting that inculcates a certain kind of mainstream investing culture, along with the other species of article in this series, which is “go to a qualified investment advisor instead of trying to figure out this investing thing yourself”. If that isn’t a mixed set of messages I don’t know what is. But personally, I think instead of just saying “go to a qualified, certified investment advisor”, these kinds of investor education articles should spend a lot more time on developing people’s skepticism and tools and techniques for identifying when a person is truly a good investor rather than a salesman.
New decade musings
Another decade closed out, and overall it’s been a good one as an investor for me — thankfully, I’ve done a little better than the middling return an investment in a North American stock index fund would have given me over the years. Perhaps not necessarily confounding evidence against efficient market theory, but close enough for me. Happy New Year, folks.
Sitting muzzy-eyed over a coffee this morning, I had the thought while reading about a stock that had gone from under a dime “up ten-fold” over the course of 2009, that I don’t really put much stock in “ten-baggers” and big investing home-runs without a corresponding discussion of how much actual money a person would typically have invested in a stock or derivative. In my investing philosophy, I would rather put a larger amount into something that may not be as high-performing, but is ostensibly less risky. I suppose intuitively I’m selecting my level of risk, but it’s something to think about when you see people put a few thousand into a flyer stock — which is more like lottery-style investing — than putting a few hundred thousand into something that might move only a fraction of the amount but comes with a relative margin of safety (in the sense of less volatility). I’m sure those who have properly studied the math around all this are probably scoffing at these kinds of insights, but I guess I’ve always had more of an intrinsic horse sense than any highly quantitative approach.
Inside the church
Harper’s takes a look at those who hang out in Warren Buffett’s reflected glory and doesn’t much like it. (From Felix Salmon, who believes that Berkshire Hathaway will turn completely average after Buffett’s shuffled off this mortal coil. I’m somewhat inclined to agree, and he makes a good point in an earlier blog post about Buffett’s talk of “100-year bets” being a little disingenuous.)
Stinky stocks
I’ve been reading some mainland Chinese trading and investment blogs, mostly to practice my reading comprehension — I’ve found Google Translate to be of some assistance here, and even given its relatively poor translation, I think you can probably get the gist of this excerpt from a September 2009 blog post by a well-known (in China) stock market blogger known as “Old Sha” which gets translate to “Old Sand”:
The reason is no longer the old sand every day on my blog, in addition to suits the need to protect the eyes, but also feel that China’s stock investors after the great bull market of 2007 has been “launched” up on the previous two years, the old sand almost become a group of investors “well-known” figure, as “the Chinese first Bo”, “2007 Person of the Year”, especially proud of is that in that period, the old sand has not received any investor penny commissions, not to become a “body care, “even chance to book time and again take the initiative to give up!
Now I can do nothing in front of the sweet-scented osmanthus trees enjoy the cool air, because I see China’s urbanization process, an inevitable trend and see the Chinese securities market continues to take the inevitable trend of cattle! Also see the investment sense basically has gained! I am sure that any people who buy stocks now, as long as those who are not buying a very small number of “stinky stocks,” will certainly be millionaire! Buy stocks now, as I bought this building house the same as a decade ago!
Multi-point up from 1600, many stocks have doubled, tripled, and in the current 3000 points up and down, Qi Zhang a long time is unlikely to occur again the scene of fall, and now had to select one or a few long-term holders of stocks Yes, six months or a year to double profits within a goal is entirely possible!
The reference to “trend of cattle” is a mistranslation — it really should say “bullish trend”. I have to say, it’s pretty amazing to read this kind of writing (“will certainly be millionaire!” and “six months” to a “year to double profits”) — it’s bubble talk, and I wonder how hard the Chinese stock market will crash. They’re working hard to introduce various futures and futures options markets in Shanghai and Shenzhen, too. “Old Sha” thinks that China’s 2010 stock market action will parallel the hot 2007 market — methinks the same stimulus issues that are driving the rallies in North America are at play.
Mark it art
A recent article in the New Criterion discusses the contemporary high-end art market. It is interesting how the bubble in the market sort of contemporaneous with the post-war economic growth; it reminds me a lot, too, of the Dutch tulip frenzy, but spread over a longer period of time and justified in a more intellectual, esoteric fashion. I suspect a potentially good trade would be to buy some of the unloved, traditional art that is being sold off by museums to fund purchases of some of this contemporary art and store it in a vault for fifty years. Everything old is new again. (That said, I enjoy a lot of contemporary art — I just don’t think it’s worth a great deal, monetarily. Interestingly, though, in the newest young artists, draughtsmanship and craft is making a comeback, so I don’t think my trade idea is too far-fetched.)
Gobble gobble gobble.
Interesting (American) Thanksgiving week trading, that’s for damn sure. One of those times when a good daytrader can really flex their muscles, although I suspect it’s not the kind of life you’d be able to maintain past a certain age, much like the pit traders (the original daytraders, for the most part) who hadn’t quite made it by the time they hit their 40s. The ones that have seem to have made it big enough to sock some of it away in long-term investments don’t seem to depend on that kind of roller-coaster action for their daily bread anymore, although I imagine the occasional thrill ride keeps them young.
Canadians who read this blog, especially Lower Mainlanders, are probably very familiar with the sudden “re-boom” of real estate in Vancouver and environs — although mostly Vancouver — due to a variety of factors. Reading Australian news, I’m reminded of how similar our Antipodean cousin is to us, with this article really playing up the similarities. Live by commodities, die by commodities, I guess. Whenever a story ends with the statement “The only possible dampener at the top…” I get a bit leery.
The Tortoise and the Hare
A Nicholas Carr article on the changing face of video-watching, as America moves towards streaming video to dumb terminals and more on-demand television watching, reminds me of how Canada’s moving at its own pace in this realm. What with the battle between Canadian broadcasters like CTV and CBC and Canadian network companies like Rogers and Shaw, arguing over carriage fees in the realm of old-school cable television, it feels like we’re really behind the curve here. I mean, in the article, Comcast is thinking of buying NBC Universal. The closest thing we have here is Rogers owning… CHUM Television (CityTV stations etc)? The Canadian Television Fund or whatever it is?
Obviously, we don’t have a real equivalent to Netflix in Canada — there have been attempts, but they’ve done relatively poorly — and very few of our content companies have looked to digital distribution, except maybe CBC, although there isn’t a full supply-chain in existence. So what remains is the ad-hoc version of downloading unofficial content and streaming it via modded Xbox. I mean, has Xbox Live or iTunes really taken off here, for distribution of Canadian television/content? I don’t know. I imagine this will make us even more America-centric; I can’t think of the last mainstream Canadian television show I’ve watched, save for the occasional cursory glance when I’m heading for the local news (one of the few areas that cable/network television still has going for it — I wonder if there will ever be a way to mimic this serendipitous kind of news-watching in a streaming or on-demand format).
This also reminds me a lot of the differences between American telecommunication companies and Canadian ones, in terms of take-up of new technology. Are we running behind in this country? Or will this kind of slow cultural uptake be our saviour in the end? (Much like the difference between American and Canadian banking cultures.)
Natural’s not in it
A veteran energy trader speaks about the issues in the natural gas market. Pretty interesting to me, as there’s been a lot of chatter about natural gas and its lows and this article makes me kind of leery of trying to profit in it.
The Egg and Butter Board
It’s pretty interesting seeing all these documentaries and books lately on futures exchanges; here’s a sort-of-review of a book by Leo Melamed, the guy who took the Merc from a pit trader’s paradise to the decentralized, electronic market it mostly is today. It’s still fascinating to me how we’ve gone from agricultural trading and hedging production to a collection of virtual markets represented by numbers, paralleling the move from hard assets and paper currencies to banking and accounts that are often just about manipulation of figures.
The Need to Win
It fascinates me a little how many people in trading or investing set goals for themselves, often monetary targets that are aimed for on a specific timeline. It’s mostly because this is so at odds with my own view of trading and the markets; at least on a broader scale, I don’t have any specific number in mind when I trade, and have found the more that I do look to specific numbers, the worse my results tend to be. I think it was in Market Wizards that someone told an anecdote about how one trader was aiming to buy a fur coat for his wife with the profits from some trade that he hadn’t yet closed, and how in the end, he lost the profits he did have and then some. It reminds me a little of this quotation from Thomas Merton’s selected translations from the writings of Zhuang Zi, The Way of Chuang Tzu, which happens to be one of my favourite books:
The Need to Win
When an archer is shooting for nothing
He has all his skill.
If he shoots for a brass buckle
He is already nervous.
If he shoots for a prize of gold
He goes blind
Or sees two targets–
He is out of his mind!His skill has not changed. But the prize
Divides him. He cares.
He thinks more of winning
Than of shooting–
And the need to win
Drains him of power.[xix. 4]
